Warren Buffett and his 5-bedroom home: Why it pays to be frugal

Wealth is not created just by investing, but also by avoiding unnecessary expenses. It does not make one stingy; rather, it makes one frugal.

BankBazaar.com | Last Updated: April 01, 2013 15:14 (IST)

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Quick-quiz. Match the place of residence given below to the following men.

World's richest man: Carlos Slim

World's second richest man: Bill Gates

World's third richest man: Amancio Ortega

World's fourth richest man: Warren Buffett

Where do they stay?

World's largest house

World's second largest house

World's third largest house

World's fourth largest house

Answer: None of the answers match the place of residence of the men given above. Isn't that so odd? The richest men don't live in the biggest houses. So what is the use of having so much wealth?

The shocker: Warren Buffet lives in a five-bedroom house brought in 1958, today valued at around $700,000. Today, almost 10 per cent Indians would be living in a house more expensive than that.

So, does that mean that Warren Buffet is a miser? With over $50 billion in wealth, he still stays in a 55-year-old house that too with "just" five bedrooms. He surely must be bluffing about his wealth, because we know for sure he is not bluffing about the house. Or is he? Well not at all. His known public wealth is $53 billion and growing.

So why does the world's fourth richest man stay in such a small house?

No, Warren Buffet is not stingy or miserly by any means, not anyone who donates $30 billion to charity can be. Rather, he has mastered the art of creating wealth.

Wealth is not created just by investing, but also by avoiding unnecessary expenses. It does not make one stingy; rather, it makes one frugal. This frugality has helped him grow his wealth year on year.

His logic is simple: An extra 10 rooms in the house is not going to create any major difference to him. However, the same money, if invested rightly -- of which he is a master -- can be made to grow to probably 10 times the same amount.

Yes, it is not easy for all of us to be like him. Others might say that he can "afford" to be frugal because he already has so much wealth and does not need to worry about anything else. True, but he has stayed the same way even when he was poor.

If Warren Buffett can do it on such a large scale, we can at least do it on a smaller scale. The secret lies in falling in love with growing wealth. If you can fall in love with the happiness that one gets by seeing wealth grow, you will automatically start repelling the evil twin: spending.

Initially, it may be very difficult and you may not even be able to follow. But once you get accustomed to it, you realize that the pain of sacrificing current consumption is much smaller as compared to the thrill of creating long-term wealth. The Rs 20,000 saved by going for a simple phone can in the coming years grow into Rs 200,000 and give you the power to be a giver.

The fundamental is to make sure we give priority to the needs and minimize the wants. Happy frugality.